Eq: Total Market

(New York)

Bonds and stocks are sending different signals right now, and it is hard to tell which side is correct. Bonds are reflecting an increasingly bearish outlook on the economy, with yields falling. Stocks, on the other hand, have been jubilant so far this year. The reality is that both sides cannot be correct. Historically speaking, bonds have usually been more astute is measuring the direction of the economy and markets, and if that is the case, then we would be headed for a downturn.

FINSUM: The Fed really weighed in with its view yesterday and they are clearly worried about the direction of the economy. Are bond investors right again?

(New York)

Bloomberg has put out a very bearish article on the economy. The publication is arguing that there is a 2/3 chance of a recession beginning this year, and that a bear market is likely to happen alongside it. As evidence of the pending downturn, the article cites these as indicators: the nearly inverted yield curve, the big fall in stocks in Q4, weak housing activity, terrible February payrolls, and the fact that the rest of the world is slowing. One of the most acute worries though is that the Fed will keep hiking as part of an effort to leave itself room to cut rates in the next recession, an action which could drive the economy into a recession.

FINSUM: Again, much of the direction of assets and the economy depends on the Fed’s mindset. If the central bank returns to hiking, a recession looks like a sure thing. But if not, it is far from certain.

(New York)

If you have doubts about where the market is heading and no fundamental view about direction, one place to search for one is in historical parallels. Sometimes looking at history prompts bullishness, but in this case, looking for past market parallels is terrifying. At the moment, the chart making the rounds is one comparing the current S&P 500 to 1937. Doing so makes it look as though the market is going to revert back into a bearish grip at any moment. But guess what, the same chart floated around in 2010, 2013, and 2015, and the big fall never happened.

FINSUM: This bull run has defied gravity many times, and it is hard to see why his time would be different. That said, all good things must come to an end at some point.

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